The “Participant Preferences in Target Date Funds: An Update” survey was conducted by ING U.S. Investment Management, which will rebrand as Voya Investment Management in May. The study suggests more than half (56%) of TDF investors feel confident they will meet their retirement goals. In comparison, just over four-in-ten (41%) non-TDF investors feel confident about their retirement savings.
Further reinforcing the confidence advantage among TDF investors is the finding that nearly two-thirds (64%) of those with holdings in TDFs feel they will be able to turn their plan savings into a reliable income stream at retirement, compared with just 43% of non-TDF investors. These findings match up closely with results of a similar study conducted by ING U.S. in 2011.
Overall, more than two-thirds (68%) of DC plan participants using TDFs report that the investments alleviated the stress of retirement planning, increased their confidence that they were making good investment decisions, and helped them feel more assured they could meet retirement income goals.
The study also shows that TDF investors tend to contribute more to their retirement plans. Forty-two percent of TDF investors contribute more than 11% of their income to their workplace plan. In comparison, just 23% of those who do not invest in TDFs were contributing more than 11% of their income.
“These findings about how target-date funds are influencing plan participants’ feelings and savings habits provide some powerful insights that both consultants and plan sponsors can act upon,” says Bas NieuweWeme, managing director and head of institutional distribution of ING U.S., based in New York. “Considering the significant increase in the equity markets in 2013, it is noteworthy that the confidence of those that don’t invest in target-date funds is no stronger than it was in 2011. On the contrary, those that invest in target-date funds continue to be more confident than non-target-date fund investors, demonstrating greater levels of retirement readiness.”
In addition to higher confidence and savings levels among TDF investors, the study finds that the vast majority of both TDF investors and non-TDF investors have a strong preference for protection against loss in the years leading up to retirement (92%) and broad diversification among both investments (92%) and investment providers (85%).
“Participants clearly want their investment providers to exhibit great care in the all-important years leading up to retirement,” says Paul Zemsky, chief investment officer of multi-asset strategies and solutions for ING U.S. “This knowledge can help consultants and plan sponsors factor in the investment preferences of their participants when customizing glide paths for their plan demographics. Our focus and objective as investment managers is to ensure we apply those risk-return preferences in a thoughtful and disciplined way.”
In addition to the research on plan participants’ use of TDFs, ING U.S. Investment Management has published “Rethinking Glide Path Design: A Holistic Approach,” a white paper on how to align investment portfolio risk with the retirement objectives of participants at every stage in the plan life cycle.
The study was conducted online with 1,017 employer-sponsored retirement plan participants between September 16 and 20, 2013. Of the respondents, 500 invested in a TDF within their plan, while 517 did not. All respondents to the survey were currently contributing to an employer-sponsored defined contribution plan, were age 25 or older, and were the primary/joint financial decision maker for their account. The survey included plans of all employer sizes.
More information on the study can be found here. A copy of the "Rethinking Glide Path Design" paper can be downloaded here.